IRS May Have Improperly Denied Tens of Thousands of Employee Retention Tax Credit Claims

Business Owners Should Appeal Potentially Dubious IRS Determinations, Says CA Law Firm Brotman Law 

SAN DIEGO, July 30, 2024 /PRNewswire/ -- A surge of new IRS letters denying pandemic-era Employee Retention Tax Credit (ERTC) claims are starting to reach businesses, forcing many to navigate a lengthy appeals process or to consider litigation against the agency. Furthermore, many taxpayers who have received the letters believe they fully qualify for the Employee Retention Tax Credit, which only casts doubt on the rationale the IRS used to base their denial on.

Impact of the IRS Response to ERTC on Businesses

The ERTC was designed to help businesses retain employees during the pandemic but has since been plagued by fraudulent claims. In response, the IRS paused processing new claims in September and initiated a crackdown on erroneous claims. To date, government watchdogs estimate that the IRS has received about 1.4 million pending claims. In response to the volume, the agency says that it will deny tens of thousands more claims, identifying between 10 and 20 percent of claims as high-risk and potentially erroneous. Another 60 to 70 percent of claims have "an unacceptable level of risk" and will be further scrutinized.

IRS Claims Met with Skepticism by the Legal Community

In the wake of the IRS's most recent announcement and as taxpayers start receiving their denied claims, many tax attorneys and other practitioners express doubt as to the information the IRS is utilizing to make its determinations. Amended payroll tax returns, which were filed in order to claim the credit, do not contain any outward information about the circumstances that support the taxpayer's claim for the ERTC. Instead of requesting additional documentation or substantiation from the taxpayer, as is the normal process in an IRS audit, the IRS has instead chosen to disallow the claims outright while providing little justification for the grounds for their decision.

"I have a hard time believing that the IRS has enough information to conclude that 80 to 90 percent of ERTC claims that were filed by taxpayers were fraudulent or have unacceptable levels of risk. When you look back at the pandemic, an overwhelmingly disproportionate number of businesses were impacted by government orders and restrictions around the country," says owner and managing attorney of Brotman Law, Sam Brotman. "As such, the math does not make much sense, and the IRS seems to be doing this as a means of ridding themselves of these claims without having to defend their position. These decisions feel very arbitrary and capricious, and it is unfortunate because the IRS has chosen yet again not to provide transparency on the issue. As such, they do a great disservice to the taxpaying business community in this country."

Professional Recommendations

Although the IRS appeals process can prolong an ultimate decision, taxpayers who receive these denial letters are urged to fight the IRS's decision and request a conference with the IRS Office of Appeals. The IRS Office of Appeals is an independent body designed to help resolve disputes between taxpayers and the government before they reach litigation. Although the IRS has taken an aggressive position toward its interpretation of taxpayer claims, taxpayers may find a more favorable environment to hear their claim in the IRS Office of Appeals. Furthermore, as several court cases play out challenging the IRS's position on ERTC and its authority, the landscape on this issue may shift in favor of the taxpayer.

Conclusion

The small business community is facing significant challenges due to these denial letters. Tax professionals and business advocates are calling for a clearer, more consistent path forward to ensure legitimate claims are recognized and businesses are not unfairly penalized.

Brotman Law is a national tax law firm headquartered in San Diego, California. For over ten years, the firm has successfully navigated IRS audits, finding ways to produce the best possible result for clients even in situations where matters are incredibly nuanced or difficult. Brotman Law is available to speak with any business owner, professional services provider, or individual interested in assessing their Employee Retention Tax Credit claim and can be reached on their website.

Contact:
Aliyah Yates
Marketing Manager
Brotman Law 
(619) 378-3138
[email protected]

About Brotman Law

Brotman Law is an established team of law professionals that have been helping clients and their businesses navigate the intricacies of tax law for over 10 years. The firm has processed thousands of individual ERTC claims representing over $160 million and the seasoned audit representation team has collectively been involved in more than a thousand audits. Brotman Law is dedicated to providing every client with exceptional legal services accompanied by a compassionate approach that is unheard of in the industry. Beyond just successes with the IRS and tax agencies, the Brotman Law team is singularly united by genuine empathy for all clients, a strong desire to help, and never-say-quit tenacity that propels the firm to the best possible results on their clients' behalf. For more information or to book a consultation with the Brotman Law team, visit SamBrotman.com or call (619) 378-3138. 

SOURCE Brotman Law